Understanding NBFC: Meaning, Types, and Role in Finance

Over the past few years, the digital lending business has grown by leaps and bounds. In fact, the extensive adoption of technology by financial organisations has enabled individuals and business entities to leverage digital lending to apply for loans and increase their chances of getting quick approval.

One of the key factors that has made digital lending more accessible and hassle-free for people is the emergence of NBFCs. These financial instructions have played a significant role in the development of the Indian economy, especially in the area of credit and finance.

NBFC full form is Non-banking Financial Company. It is a type of financial institution that offers bank-like financial services but does not have a banking license. However, these institutions are subject to the same rules and regulations as traditional banks.

Understanding the meaning of NBFC

NBFC meaning is quite simple. It is a financial organisation that offers various financial services, similar to a traditional bank, like loans, currency exchange, investment opportunities, credit facilities, etc. However, as per the RBI (Reserve Bank of India) guidelines, these institutions are not allowed to accept deposits from the public.

Type of NBFCs

Now that you know what is NBFC, let understand its different types.

• AFC – Asset Finance Company

  Asset Finance Company is a type of NBFC that finances the purchase of physical assets for business organisations, such as vehicles, heavy machinery, production equipment, etc.

  
  

• IC – Investment Company

  One of the most popular types of non-banking financial institutions is an investment company. This type of NBFC deals only with investing in securities, like bonds, shares, and other debt instruments.

  
  

• LC – Loan Company

  As the name says, LC is a type of NBFC that offers loans and credit facilities to both individuals and business entities. They may offer different kinds of loans like business loans, vehicle loans, personal loans, etc.

  
  

  One of the best NBFC examples is Udyog Plus, which is an integral part of Aditya Birla Finance Limited. It is one of the leading NBFCs in India and has a reputation for offering a wide range of business loans, investments, and insurance solutions.

  
  

• IFC – Infrastructure Finance Company

  IFCs are a type of non-banking financial company that provides financial support for major infrastructure projects like telecommunications, transportation, power plants, etc.

  
  

• MFC – Micro Finance Company

  These NBFCs offer microfinance services like small loans to individuals and groups based in semi-urban and rural areas.

  
  

 Understanding the Role of NBFC in Finance

Over the last couple of decades, the contribution made by non-banking financial companies to the Indian economy and growth has been remarkable. Also, the number of these financial organisations has grown significantly, which only stresses their importance and their role in the country's finance. Some of the important roles of NBFCs include:

• Bridging the credit gap

  One of the most important roles played by NBFCs in the Indian financial sector is that it has been instrumental in offering credit facilities to the underserved segments and areas of the economy and bridging the gap left open by banks. These sectors have a great credit requirement and NBFCs have become a go-to option for availing loans among people in these sectors.

  
  

• Maintain stability in the financial market

  Maintaining stability in the financial market is another important role that NBFCs have played. Since these types of financial organisations are able to operate independently and as reliable intermediaries, they have been instrumental in strengthening the financial market in India.

  
  

• Mobilising the resources

  The most important goal of the financial market is to mobilise people’s savings into investments. This, in turn, helps in the economic development of the nation. The non-banking financial companies have been immensely successful in helping mobilize the resources from savers to investors and thus have been contributing to the economic transformation and driving growth.

  
  

• Supporting SMEs

  NBFCs have played an important role in supporting the growth of small businesses in India. They offer a wide range of financial services to these enterprises, including business loans, working capital loans, machinery and trade loans, etc., which in turn help these small businesses expand their operations and grow further.

  
  

  Also Read: 8 Amazing Small Business Ideas Under ₹1 lakh in India

Scope of NBFCs

NBFCs have a huge growth scope in India, especially since there is an increasing demand for credit and financial services. These financial organizations offer a wide range of financial services and products like personal loans, business loans, LAP (loans against property), business loans for self-employed, etc. These institutions also provide investment opportunities like mutual funds, FDs (fixed deposits), and other investment instruments.

Conclusion

NBFCs are an integral part of the Indian financial service sector, and they play an important role in the country’s economic growth and development. They offer a wide range of financial services like banks and have been instrumental in helping small businesses get access to the credit facilities they need for growing their business.

If you are a small business owner in India and are looking for the best loan option, you can find a wide range of business loan solutions offered by Udyog Plus. It is one of the leading NBFCs in India. The brand is an integral part of Aditya Birla Finance Limited and offers unsecured business loans of up to Rs. 2 Lakh to self-employed without the need for any documents.

Also, the loan is offered at competitive interest, with extended tenure and flexible payment terms, allowing you to easily repay the amount, and the quick approval process ensures a hassle-free borrowing experience.